South Korean shares rally on post-election stimulus, reform hopes
A currency trader works near a screen showing the Korea Composite Stock Price Index (KOSPI) at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, on Thursday, May 22, 2025. (File photo: AP/Ahn Young-joon)
SEOUL: South Korean shares climbed on Wednesday (Jun 4) to their highest levels in 10 months, as liberal presidential candidate Lee Jae-myung's election victory raised hopes of swift economic stimulus policies and market reforms.
The benchmark KOSPI jumped 2.66 per cent to 2,770.84, posting its biggest daily gain in nearly two months and closing at the highest level since Aug 1, 2024.
Lee officially took office as president on Wednesday, just hours after his victory in a snap election the previous day. His swift rise to power ends six months of political turmoil sparked by former President Yoon Suk Yeol's failed attempt to impose martial law in December - a move that stunned the country and rattled financial markets.
"The inauguration of the new administration resolved political uncertainty," said Kang Jin-hyeok, an analyst at Shinhan Securities.
"And, there are expectations that policy drives could be strong as Lee's Democratic Party holds a majority in parliament," Kang said.
Foreign investors snapped up local shares worth 1.05 trillion won ($766.60 million), marking their biggest single-day purchase since Aug 16, 2024.
Lee has pledged to bring corporate reform measures to boost the domestic stock market, raise investment in artificial intelligence, and revive an economy reeling from slowing growth with stimulus policies.
On capital markets, Lee has pledged to revive legislation within a few weeks to curb abuses by controlling shareholders of chaebol conglomerates, as part of his "KOSPI 5,000" pledge to double the value of the domestic stock market.
The revision to the Commercial Act is seen by market analysts as a fundamental change needed to resolve the so-called "Korea Discount", a tendency for local shares to be undervalued compared with global peers due to low dividend payouts and opaque corporate governance.
The securities sector was the top gainer, rising 8.1 per cent to its highest level since August 2009, while financial groups jumped 6.5 per cent to the highest point since May 2008.
Analysts anticipate that these sectors will be among the biggest beneficiaries of ongoing market reform efforts.
"We expect to see meaningful progress in capital market and governance reform post-election," Morgan Stanley's analysts said in a note, setting their KOSPI target for June 2026 at 2,800 for the base case and 3,100 for the bullish case.
Renewable energy stocks rallied on expectations of a reversal in energy policy away from nuclear energy, with Hanwha Solutions climbing 5.7 per cent and OCI gaining 4.9 per cent, while the construction sector rose nearly 3 per cent on stimulus hopes.
With President Lee signalling a more conciliatory approach toward North Korea and China, stocks with exposure to North Korea, including In The F and Namkwang Engineering & Construction, and those with exposure to China, such as beauty product makers and entertainment firms, advanced.
Among major heavyweights, chipmaker SK Hynix gained 4.8 per cent, while rival Samsung Electronics rose 1.8 per cent, further buoyed by overnight gains among US peers.
"A combination of aggressive industrial policies and expansionary fiscal policies could lead to faster economic growth, at least in the short term," said Kim Jin-wook, an economist at Citi.
Lee announced plans to draft a second supplementary government budget of at least 30 trillion won to support the trade-reliant economy, which has been hit by US tariffs and is projected to grow by just 0.8 per cent this year. This follows a 13.8 trillion won supplementary budget passed in May.
The won strengthened 0.55 per cent to 1,369.5 per dollar on the onshore settlement platform.
The country's treasury bond yields rose, with the benchmark 10-year yield gaining 9.3 basis points to 2.894 per cent, the biggest jump since Jan 13.
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Other Asian shares also extended a global rise on Wednesday following data indicating the US economy remained resilient.
Speculation that United States President Donald Trump and Chinese leader Xi Jinping will speak this week stoked optimism for a soothing of trade tensions between Washington and Beijing.
However, Trump's ramped-up tariffs on aluminium and steel imports - announced on Friday - are due to kick in later on Wednesday, highlighting the uncertainty caused by the White House's off-the-cuff policies.
Traders in Asia took the baton from a positive Wall Street, where all three main indexes were lifted by data showing US job openings unexpectedly rose in April, calming worries about the impact of Trump's tariff blitz on the world's number one economy.
The reading came ahead of crucial non-farm payrolls figures on Friday, which are closely followed by the US Federal Reserve as it maps monetary policy in light of weak growth and fears of tariff-fuelled inflation.
"Growth is sputtering, the second half looks increasingly cloudy, and everyone knows the Fed's rate-cut cavalry will ride in eventually. It's already priced, already scripted - no one's shocked by the plot twist unless, of course, inflation proves stickier than expected," said Stephen Innes at SPI Asset Management.
"But what's genuinely keeping equities ticking higher is the soft hum of hope - that US-China tensions could thaw into something warmer than their current frosty detente," Innes said.
He added that the risk of tariffs, "once a terrifying monster, now looks more like a toothless terrier's wag, comforting investors enough to hold their ground despite the global economy's chills".
Traders are awaiting further developments on the China-US front after White House officials said the two nations' leaders could talk this week, even after Trump accused Beijing of violating last month's detente that slashed tit-for-tat tariffs.
News that eurozone inflation had eased in May to its lowest level in eight months - and slipped back below the European Central Bank's 2 per cent target - added to the upbeat mood.
Tokyo, Hong Kong, Shanghai, Sydney, Wellington, Taipei, Manila and Jakarta all rose.
